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EX-32.2 - EXHIBIT 32.2 - First Bancorp, Inc /ME/fnlc-20160930xex322.htm
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EX-31.2 - EXHIBIT 31.2 - First Bancorp, Inc /ME/fnlc-20160930xex312.htm
EX-31.1 - EXHIBIT 31.1 - First Bancorp, Inc /ME/fnlc-20160930xex311.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549




FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For the quarterly period ended September 30, 2016

Commission File Number 0-26589




THE FIRST BANCORP, INC.
(Exact name of Registrant as specified in its charter)

MAINE
01-0404322
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

MAIN STREET, DAMARISCOTTA,  MAINE
04543
(Address of principal executive offices)
 (Zip code)

(207) 563-3195
Registrant's telephone number, including area code




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]    No[_]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
 if any, every,Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]    No[_]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act. (Check one):
Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_] Smaller reporting company [_]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [_]    No [X]


Indicate the number of shares outstanding of each of the registrant's classes of common stock as of November 1, 2016
Common Stock: 10,791,668 shares




Table of Contents
Note 10 - Financial Derivative Instruments








Part I. Financial Information
Selected Financial Data (Unaudited)
The First Bancorp, Inc. and Subsidiary
Dollars in thousands,
As of and for the nine months ended September 30,
 
As of and for the quarters ended September 30,
 
except for per share amounts
2016
 
2015
 
2016
 
2015
 
Summary of Operations
 
 
 
 
 
 
 
 
Interest Income
$
40,159

 
$
37,772

 
$
13,283

 
$
12,833

 
Interest Expense
7,950

 
7,481

 
2,754

 
2,322

 
Net Interest Income
32,209

 
30,291

 
10,529

 
10,511

 
Provision for Loan Losses
1,125

 
1,100

 
375

 
200

 
Non-Interest Income
9,439

 
9,467

 
3,469

 
2,975

 
Non-Interest Expense
21,850

 
21,952

 
7,405

 
7,707

 
Net Income
13,689

 
12,437

 
4,562

 
4,188

 
Per Common Share Data
 
 
 
 
 
 
 
 
Basic Earnings per Share
$
1.28

 
$
1.17

 
$
0.43

 
$
0.39

 
Diluted Earnings per Share
1.27

 
1.16

 
0.42

 
0.39

 
Cash Dividends Declared
0.68

 
0.65

 
0.23

 
0.22

 
Book Value per Common Share
16.31

 
15.55

 
16.31

 
15.55

 
Tangible Book Value per Common Share2
13.53

 
12.75

 
13.53

 
12.75

 
Market Value
23.97

 
19.10

 
23.97

 
19.10

 
Financial Ratios
 
 
 
 
 
 
 
 
Return on Average Equity1
10.48

%
10.05

%
10.24

%
9.97

%
Return on Average Tangible Common Equity1,2
12.67

%
12.29

%
12.33

%
12.18

%
Return on Average Assets1
1.15

%
1.11

%
1.12

%
1.09

%
Average Equity to Average Assets
10.94

%
11.05

%
10.99

%
10.88

%
Average Tangible Equity to Average Assets2
9.06

%
9.03

%
9.12

%
8.92

%
Net Interest Margin Tax-Equivalent1,2
3.08

%
3.09

%
2.98

%
3.11

%
Dividend Payout Ratio
53.13

%
55.56

%
53.49

%
56.41

%
Allowance for Loan Losses/Total Loans
1.00

%
1.00

%
1.00

%
1.00

%
Non-Performing Loans to Total Loans
0.69

%
0.83

%
0.69

%
0.83

%
Non-Performing Assets to Total Assets
0.49

%
0.65

%
0.49

%
0.65

%
Efficiency Ratio2
50.19

%
53.76

%
50.25

%
53.88

%
At Period End
 
 
 
 
 
 
 
 
Total Assets
$
1,635,088

 
$
1,539,672

 
$
1,635,088

 
$
1,539,672

 
Total Loans
1,028,992

 
963,151

 
1,028,992

 
963,151

 
Total Investment Securities
485,111

 
475,167

 
485,111

 
475,167

 
Total Deposits
1,173,749

 
1,058,365

 
1,173,749

 
1,058,365

 
Total Shareholders' Equity
175,994

 
167,141

 
175,994

 
167,141

 
1Annualized using a 366-day basis for 2016 and a 365-day basis for 2015.
2These ratios use non-GAAP financial measures. See Management's Discussion and Analysis of Financial Condition and Results of Operations for additional disclosures and information.

Page 1



Item 1 – Financial Statements










Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
The First Bancorp, Inc.

We have reviewed the accompanying interim consolidated financial information of The First Bancorp, Inc. and Subsidiary as of September 30, 2016 and 2015 and for the three-month and nine-month periods then ended. These financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying  interim consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.


/s/ Berry Dunn McNeil & Parker, LLC
Bangor, Maine
November 9, 2016

Page 2



Consolidated Balance Sheets (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
September 30,
2016
 
December 31, 2015
 
September 30,
2015
Assets
 
 
 
 
 
Cash and cash equivalents
$
23,456,000

 
$
14,299,000

 
$
19,169,000

Interest bearing deposits in other banks
15,098,000

 
4,013,000

 
301,000

Securities available for sale
282,293,000

 
223,039,000

 
215,933,000

Securities to be held to maturity (fair value of $195,797,000 at September 30, 2016, $243,123,000 at December 31, 2015 and $248,344,000 at September 30, 2015)
188,770,000

 
240,023,000

 
245,322,000

Restricted equity securities, at cost
14,048,000

 
14,257,000

 
13,912,000

Loans held for sale
1,228,000

 
349,000

 
200,000

Loans
1,028,992,000

 
988,638,000

 
963,151,000

Less allowance for loan losses
10,298,000

 
9,916,000

 
9,677,000

Net loans
1,018,694,000

 
978,722,000

 
953,474,000

Accrued interest receivable
5,079,000

 
4,912,000

 
5,189,000

Premises and equipment, net
21,779,000

 
21,816,000

 
21,704,000

Other real estate owned
855,000

 
1,532,000

 
1,916,000

Goodwill
29,805,000

 
29,805,000

 
29,805,000

Other assets
33,983,000

 
32,043,000

 
32,747,000

Total assets
$
1,635,088,000

 
$
1,564,810,000

 
$
1,539,672,000

Liabilities
 
 
 
 
 
Demand deposits
$
158,476,000

 
$
130,566,000

 
$
128,555,000

NOW deposits
295,708,000

 
242,638,000

 
246,155,000

Money market deposits
76,685,000

 
92,994,000

 
95,217,000

Savings deposits
218,425,000

 
206,009,000

 
199,131,000

Certificates of deposit
424,455,000

 
370,982,000

 
389,307,000

Total deposits
1,173,749,000

 
1,043,189,000

 
1,058,365,000

Borrowed funds – short term
137,970,000

 
222,323,000

 
152,233,000

Borrowed funds – long term
130,128,000

 
115,134,000

 
145,136,000

Other liabilities
17,247,000

 
16,666,000

 
16,797,000

Total liabilities
1,459,094,000

 
1,397,312,000

 
1,372,531,000

Shareholders' equity
 
 
 
 
 
Common stock, one cent par value per share
108,000

 
108,000

 
107,000

Additional paid-in capital
60,500,000

 
59,862,000

 
59,667,000

Retained earnings
112,900,000

 
106,673,000

 
105,273,000

Accumulated other comprehensive income (loss)
 
 
 
 
 
   Net unrealized gain on securities available for sale
2,708,000

 
1,123,000

 
2,318,000

Net unrealized loss on securities transferred from available for sale to held to maturity
(124,000
)
 
(112,000
)
 
(99,000
)
   Net unrealized gain on cash flow hedging derivative instruments
58,000

 

 

   Net unrealized loss on postretirement benefit costs
(156,000
)
 
(156,000
)
 
(125,000
)
Total shareholders' equity
175,994,000

 
167,498,000

 
167,141,000

Total liabilities & shareholders' equity
$
1,635,088,000

 
$
1,564,810,000

 
$
1,539,672,000

Common Stock
 
 
 
 
 
Number of shares authorized
18,000,000

 
18,000,000

 
18,000,000

Number of shares issued and outstanding
10,788,329

 
10,753,855

 
10,747,495

Book value per common share
$
16.31

 
$
15.58

 
$
15.55

Tangible book value per common share
$
13.53

 
$
12.78

 
$
12.75

See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.

Page 3



Consolidated Statements of Income and Comprehensive Income (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
For the nine months ended September 30,
 
For the quarter ended September 30,
 
2016
 
2015
 
2016
 
2015
Interest income
 
 
 
 
 
 
 
Interest and fees on loans (includes year-to-date tax-exempt income of $487,000 in 2016 and $434,000 in September 30, 2015)
$
29,759,000

 
$
27,247,000

 
$
10,021,000

 
$
9,235,000

Interest on deposits with other banks
17,000

 
16,000

 
9,000

 
3,000

Interest and dividends on investments (includes year-to-date tax-exempt income of $3,761,000 in 2016 and $3,891,000 in 2015)
10,383,000

 
10,509,000

 
3,253,000

 
3,595,000

     Total interest income
40,159,000

 
37,772,000

 
13,283,000

 
12,833,000

Interest expense
 
 
 
 
 
 
 
Interest on deposits
4,382,000

 
3,995,000

 
1,538,000

 
1,236,000

Interest on borrowed funds
3,568,000

 
3,486,000

 
1,216,000

 
1,086,000

     Total interest expense
7,950,000

 
7,481,000

 
2,754,000

 
2,322,000

Net interest income
32,209,000

 
30,291,000

 
10,529,000

 
10,511,000

Provision for loan losses
1,125,000

 
1,100,000

 
375,000

 
200,000

Net interest income after provision for loan losses
31,084,000

 
29,191,000

 
10,154,000

 
10,311,000

Non-interest income
 
 
 
 
 
 
 
Investment management and fiduciary income
1,805,000

 
1,706,000

 
591,000

 
548,000

Service charges on deposit accounts
1,711,000

 
1,801,000

 
528,000

 
564,000

Net securities gains
668,000

 
1,396,000

 
137,000

 
1,000

Mortgage origination and servicing income, net of amortization
1,534,000

 
1,093,000

 
896,000

 
388,000

Other operating income
3,721,000

 
3,471,000

 
1,317,000

 
1,474,000

     Total non-interest income
9,439,000

 
9,467,000

 
3,469,000

 
2,975,000

Non-interest expense
 
 
 
 
 
 
 
Salaries and employee benefits
11,136,000

 
10,944,000

 
3,931,000

 
3,784,000

Occupancy expense
1,735,000

 
1,772,000

 
589,000

 
556,000

Furniture and equipment expense
2,416,000

 
2,324,000

 
819,000

 
772,000

FDIC insurance premiums
631,000

 
667,000

 
210,000

 
221,000

Amortization of identified intangibles
32,000

 
47,000

 
10,000

 
11,000

Other operating expense
5,900,000

 
6,198,000

 
1,846,000

 
2,363,000

     Total non-interest expense
21,850,000

 
21,952,000

 
7,405,000

 
7,707,000

Income before income taxes
18,673,000

 
16,706,000

 
6,218,000

 
5,579,000

Income tax expense
4,984,000

 
4,269,000

 
1,656,000

 
1,391,000

NET INCOME
$
13,689,000

 
$
12,437,000

 
$
4,562,000

 
$
4,188,000

Basic earnings per common share
$
1.28

 
$
1.17

 
$
0.43

 
$
0.39

Diluted earnings per common share
$
1.27

 
$
1.16

 
$
0.42

 
$
0.39

Other comprehensive income (loss) net of tax
 
 
 
 
 
 
 
Net unrealized gain (loss) on securities available for sale
1,585,000

 
(204,000
)
 
(1,292,000
)
 
1,330,000

Net unrealized gain (loss) on securities transferred from available for sale to held to maturity, net of amortization
(12,000
)
 
(51,000
)
 
9,000

 
(15,000
)
Net unrealized gain on cash flow hedging derivative instruments
58,000

 

 
193,000

 

      Other comprehensive income (loss)
1,631,000

 
(255,000
)
 
(1,090,000
)
 
1,315,000

Comprehensive income
$
15,320,000

 
$
12,182,000

 
$
3,472,000

 
$
5,503,000

See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

Page 4



Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
 
Common stock and
additional paid-in capital
 
Retained
earnings
 
Accumulated
other
comprehensive
income
 
Total
shareholders'
equity
 
 
Shares
 
Amount
 
 
 
Balance at December 31, 2014
 
10,724,359

 
$
59,389,000

 
$
99,816,000

 
$
2,349,000

 
$
161,554,000

Net income
 

 

 
12,437,000

 

 
12,437,000

Net unrealized loss on securities available for sale, net of tax
 

 

 

 
(204,000
)
 
(204,000
)
Net unrealized loss on securities transferred from available for sale to held to maturity, net of tax
 

 

 

 
(51,000
)
 
(51,000
)
Comprehensive income
 

 

 
12,437,000

 
(255,000
)
 
12,182,000

Cash dividends declared ($0.65 per share)
 

 

 
(6,980,000
)
 

 
(6,980,000
)
Equity compensation expense
 

 
222,000

 

 

 
222,000

Payment to repurchase common stock
 
(10,138
)
 
(180,000
)
 

 

 
(180,000
)
Issuance of restricted stock
 
13,650

 

 

 

 

Proceeds from sale of common stock
 
19,624

 
343,000

 

 

 
343,000

Balance at September 30, 2015
 
10,747,495

 
$
59,774,000

 
$
105,273,000

 
$
2,094,000

 
$
167,141,000

 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
10,753,855

 
$
59,970,000

 
$
106,673,000

 
$
855,000

 
$
167,498,000

Net income
 

 

 
13,689,000

 

 
13,689,000

Net unrealized gain on securities available for sale, net of tax
 

 

 

 
1,585,000

 
1,585,000

Net unrealized gain on cash flow hedging derivative instruments
 

 

 

 
58,000

 
58,000

Net unrealized loss on securities transferred from available for sale to held to maturity, net of tax
 

 

 

 
(12,000
)
 
(12,000
)
Comprehensive income
 

 

 
13,689,000

 
1,631,000

 
15,320,000

Cash dividends declared ($0.68 per share)
 

 

 
(7,333,000
)
 

 
(7,333,000
)
Equity compensation expense
 

 
215,000

 

 

 
215,000

Payment to repurchase common stock
 
(7,053
)
 

 
(129,000
)
 

 
(129,000
)
Tax benefit from vesting of restricted stock
 

 
32,000

 

 

 
32,000

Issuance of restricted stock
 
21,847

 

 

 

 

Proceeds from sale of common stock
 
19,680

 
391,000

 

 

 
391,000

Balance at September 30, 2016
 
10,788,329

 
$
60,608,000

 
$
112,900,000

 
$
2,486,000

 
$
175,994,000

See Report of Independent Registered Public Accounting Firm.
The accompanying notes are an integral part of these consolidated financial statements.

Page 5



Consolidated Statements of Cash Flows (Unaudited)
The First Bancorp, Inc. and Subsidiary
 
For the nine months ended
 
September 30, 2016
 
September 30, 2015
Cash flows from operating activities
 
 
 
     Net income
$
13,689,000

 
$
12,437,000

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation
1,302,000

 
1,276,000

Change in deferred taxes
(237,000
)
 
334,000

Provision for loan losses
1,125,000

 
1,100,000

Loans originated for resale
(37,790,000
)
 
(23,504,000
)
Proceeds from sales and transfers of loans
37,765,000

 
23,794,000

Net gain on sales of loans
(854,000
)
 
(490,000
)
Net gain on sale or call of securities
(668,000
)
 
(1,396,000
)
Net amortization of premiums on investments
1,668,000

 
634,000

Net (gain) loss on sale of other real estate owned
(168,000
)
 
2,000

Provision for losses on other real estate owned
89,000

 
236,000

Equity compensation expense
215,000

 
222,000

Tax benefit from vesting of restricted stock
32,000

 

Net increase in other assets and accrued interest
(2,115,000
)
 
(1,486,000
)
Net (decrease) increase in other liabilities
(159,000
)
 
978,000

Amortization of investment in limited partnership
146,000

 
199,000

Net acquisition amortization
32,000

 
47,000

     Net cash provided by operating activities
14,072,000

 
14,383,000

Cash flows from investing activities
 
 
 
(Increase) decrease in interest-bearing deposits in other banks
(11,085,000
)
 
3,258,000

Proceeds from sales of securities available for sale
10,305,000

 
35,466,000

Proceeds from maturities, payments and calls of securities available for sale
49,088,000

 
25,481,000

Proceeds from maturities, payments and calls of securities to be held to maturity
82,900,000

 
36,367,000

Proceeds from sales of other real estate owned
1,340,000

 
2,587,000

Purchases of securities available for sale
(117,307,000
)
 
(91,297,000
)
Purchases of securities to be held to maturity
(31,549,000
)
 
(5,644,000
)
Investment in bank-owned life insurance

 
(10,000,000
)
Redemption of restricted equity securities
209,000

 

Net increase in loans
(41,681,000
)
 
(48,310,000
)
Capital expenditures
(1,265,000
)
 
(371,000
)
Proceeds from disposal of premises and equipment

 
10,000

     Net cash used by investing activities
(59,045,000
)
 
(52,453,000
)
Cash flows from financing activities
 
 
 
Net increase in demand, savings, and money market accounts
77,087,000

 
91,740,000

Net increase (decrease) in certificates of deposit
53,473,000

 
(58,194,000
)
Net (decrease) increase in short-term borrowings
(104,359,000
)
 
2,453,000

Advances on long-term borrowings
35,000,000

 
55,000,000

Repayment on long-term borrowings

 
(40,000,000
)
Payment to repurchase common stock
(129,000
)
 
(180,000
)
Proceeds from sale of common stock
391,000

 
343,000

Dividends paid
(7,333,000
)
 
(6,980,000
)
     Net cash provided by financing activities
54,130,000

 
44,182,000

Net increase in cash and cash equivalents
9,157,000

 
6,112,000

Cash and cash equivalents at beginning of period
14,299,000

 
13,057,000

     Cash and cash equivalents at end of period
$
23,456,000

 
$
19,169,000

Interest paid
$
7,877,000

 
$
7,564,000

Income taxes paid
4,682,000

 
2,915,000

Non-cash transactions
 
 
 
Net transfer from loans to other real estate owned
$
584,000

 
$
956,000


Page 6



Notes to Consolidated Financial Statements
The First Bancorp, Inc. and Subsidiary
                          
Note 1 – Basis of Presentation
The First Bancorp, Inc. ("the Company") is a financial holding company that owns all of the common stock of First National Bank ("the Bank"). The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany transactions and balances are eliminated in consolidation. The income reported for the 2016 period is not necessarily indicative of the results that may be expected for the year ending December 31, 2016. For further information, refer to the consolidated financial statements and notes included in the Company's annual report on Form 10-K for the year ended December 31, 2015.
Subsequent Events
Events occurring subsequent to September 30, 2016, have been evaluated as to their potential impact to the financial statements.

Note 2 – Investment Securities
The following table summarizes the amortized cost and estimated fair value of investment securities at September 30, 2016:
 
Amortized
Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value (Estimated)
Securities available for sale
 
 
 
 
 
 
 
Mortgage-backed securities
$
258,179,000

 
$
3,848,000

 
$
(513,000
)
 
$
261,514,000

State and political subdivisions
16,689,000

 
795,000

 

 
17,484,000

Other equity securities
3,258,000

 
55,000

 
(18,000
)
 
3,295,000

 
$
278,126,000

 
$
4,698,000

 
$
(531,000
)
 
$
282,293,000

Securities to be held to maturity
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
$
891,000

 
$
15,000

 
$

 
$
906,000

Mortgage-backed securities
34,186,000

 
1,386,000

 
(34,000
)
 
35,538,000

State and political subdivisions
149,393,000

 
5,830,000

 
(170,000
)
 
155,053,000

Corporate securities
4,300,000

 

 

 
4,300,000

 
$
188,770,000

 
$
7,231,000

 
$
(204,000
)
 
$
195,797,000

Restricted equity securities
 
 
 
 
 
 
 
Federal Home Loan Bank Stock
$
13,011,000

 
$

 
$

 
$
13,011,000

Federal Reserve Bank Stock
1,037,000

 

 

 
1,037,000

 
$
14,048,000

 
$

 
$

 
$
14,048,000



Page 7



The following table summarizes the amortized cost and estimated fair value of investment securities at December 31, 2015:
 
Amortized
Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value (Estimated)
Securities available for sale
 
 
 
 
 
 
 
Mortgage-backed securities
$
194,563,000

 
$
1,509,000

 
$
(962,000
)
 
$
195,110,000

State and political subdivisions
23,367,000

 
1,201,000

 
(62,000
)
 
24,506,000

Other equity securities
3,381,000

 
48,000

 
(6,000
)
 
3,423,000

 
$
221,311,000

 
$
2,758,000

 
$
(1,030,000
)
 
$
223,039,000

Securities to be held to maturity
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
$
71,000,000

 
$
40,000

 
$
(2,284,000
)
 
$
68,756,000

Mortgage-backed securities
42,193,000

 
1,305,000

 
(136,000
)
 
43,362,000

State and political subdivisions
122,530,000

 
4,200,000

 
(25,000
)
 
126,705,000

Corporate securities
4,300,000

 

 

 
4,300,000

 
$
240,023,000

 
$
5,545,000

 
$
(2,445,000
)
 
$
243,123,000

Restricted equity securities
 
 
 
 
 
 
 
Federal Home Loan Bank Stock
$
13,220,000

 
$

 
$

 
$
13,220,000

Federal Reserve Bank Stock
1,037,000

 

 

 
1,037,000

 
$
14,257,000

 
$

 
$

 
$
14,257,000


The following table summarizes the amortized cost and estimated fair value of investment securities at September 30, 2015:
 
Amortized
Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value (Estimated)
Securities available for sale
 
 
 
 
 
 
 
Mortgage-backed securities
$
184,865,000

 
$
2,921,000

 
$
(276,000
)
 
$
187,510,000

State and political subdivisions
24,372,000

 
1,104,000

 
(186,000
)
 
25,290,000

Other equity securities
3,129,000

 
40,000

 
(36,000
)
 
3,133,000

 
$
212,366,000

 
$
4,065,000

 
$
(498,000
)
 
$
215,933,000

Securities to be held to maturity
 
 
 
 
 
 
 
U.S. Government-sponsored agencies
$
75,991,000

 
$
22,000

 
$
(1,571,000
)
 
$
74,442,000

Mortgage-backed securities
45,287,000

 
1,744,000

 
(53,000
)
 
46,978,000

State and political subdivisions
123,744,000

 
3,031,000

 
(151,000
)
 
126,624,000

Corporate securities
300,000

 

 

 
300,000

 
$
245,322,000

 
$
4,797,000

 
$
(1,775,000
)
 
$
248,344,000

Restricted equity securities
 
 
 
 
 
 
 
Federal Home Loan Bank Stock
$
12,875,000

 
$

 
$

 
$
12,875,000

Federal Reserve Bank Stock
1,037,000

 

 

 
1,037,000

 
$
13,912,000

 
$

 
$

 
$
13,912,000



Page 8



The following table summarizes the contractual maturities of investment securities at September 30, 2016:
 
Securities available for sale
 
Securities to be held to maturity
 
Amortized
Cost
 
Fair Value (Estimated)
 
Amortized
Cost
 
Fair Value (Estimated)
Due in 1 year or less
$
973,000

 
$
974,000

 
$
1,772,000

 
$
1,783,000

Due in 1 to 5 years
3,020,000

 
3,106,000

 
13,428,000

 
13,782,000

Due in 5 to 10 years
22,843,000

 
23,503,000

 
39,832,000

 
41,423,000

Due after 10 years
248,032,000

 
251,415,000

 
133,738,000

 
138,809,000

Equity securities
3,258,000

 
3,295,000

 

 

 
$
278,126,000

 
$
282,293,000

 
$
188,770,000

 
$
195,797,000


The following table summarizes the contractual maturities of investment securities at December 31, 2015:
 
Securities available for sale
 
Securities to be held to maturity
 
Amortized
Cost
 
Fair Value (Estimated)
 
Amortized
Cost
 
Fair Value (Estimated)
Due in 1 year or less
$
527,000

 
$
530,000

 
$
1,814,000

 
$
1,850,000

Due in 1 to 5 years
7,562,000

 
7,727,000

 
6,306,000

 
6,514,000

Due in 5 to 10 years
19,647,000

 
20,055,000

 
58,397,000

 
60,196,000

Due after 10 years
190,194,000

 
191,304,000

 
173,506,000

 
174,563,000

Equity securities
3,381,000

 
3,423,000

 

 

 
$
221,311,000

 
$
223,039,000

 
$
240,023,000

 
$
243,123,000


The following table summarizes the contractual maturities of investment securities at September 30, 2015:
 
Securities available for sale
 
Securities to be held to maturity
 
Amortized
Cost
 
Fair Value (Estimated)
 
Amortized
Cost
 
Fair Value (Estimated)
Due in 1 year or less
$
926,000

 
$
937,000

 
$
1,362,000

 
$
1,378,000

Due in 1 to 5 years
8,867,000

 
9,077,000

 
6,861,000

 
7,140,000

Due in 5 to 10 years
9,459,000

 
9,872,000

 
49,095,000

 
50,778,000

Due after 10 years
189,985,000

 
192,914,000

 
188,004,000

 
189,048,000

Equity securities
3,129,000

 
3,133,000

 

 

 
$
212,366,000

 
$
215,933,000

 
$
245,322,000

 
$
248,344,000

At September 30, 2016, securities with a fair value of $249,162,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law. This compares to securities with a fair value of $201,879,000 as of December 31, 2015 and $221,072,000 at September 30, 2015, pledged for the same purposes.
Gains and losses on the sale of securities available for sale are computed by subtracting the amortized cost at the time of sale from the security's selling price, net of accrued interest to be received. The following table shows securities gains and losses for the nine months and quarters ended September 30, 2016 and 2015:
 
For the nine months ended September 30,
 
For the quarter ended September 30,
 
2016
 
2015
 
2016
 
2015
Proceeds from sales of securities
$
10,305,000

 
$
35,466,000

 
$
1,351,000

 
$
1,000

Gross realized gains
668,000

 
1,396,000

 
137,000

 
1,000

Gross realized losses

 

 

 

Net gain
$
668,000

 
$
1,396,000

 
$
137,000

 
$
1,000

Related income taxes
$
234,000

 
$
489,000

 
$
48,000

 
$



Page 9



Management reviews securities with unrealized losses for other than temporary impairment. As of September 30, 2016, there were 71 securities with unrealized losses held in the Company's portfolio. These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 13 had been temporarily impaired for 12 months or more. At the present time, there have been no material changes in the credit quality of these securities resulting in other than temporary impairment, and in Management's opinion, no additional write-down for other-than-temporary impairment is warranted. Information regarding securities temporarily impaired as of September 30, 2016 is summarized below:
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
Mortgage-backed securities
$
79,118,000

 
$
(468,000
)
 
$
2,407,000

 
$
(79,000
)
 
$
81,525,000

 
$
(547,000
)
State and political subdivisions
13,666,000

 
(170,000
)
 

 

 
13,666,000

 
(170,000
)
Other equity securities
10,000

 
(2,000
)
 
107,000

 
(16,000
)
 
117,000

 
(18,000
)
 
$
92,794,000

 
$
(640,000
)
 
$
2,514,000

 
$
(95,000
)
 
$
95,308,000

 
$
(735,000
)

As of December 31, 2015, there were 78 securities with unrealized losses held in the Company's portfolio. These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 15 had been temporarily impaired for 12 months or more. Information regarding securities temporarily impaired as of December 31, 2015 is summarized below:
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
U.S. Government-sponsored agencies
$
45,311,000

 
$
(1,469,000
)
 
$
17,185,000

 
$
(815,000
)
 
$
62,496,000

 
$
(2,284,000
)
Mortgage-backed securities
120,915,000

 
(1,027,000
)
 
910,000

 
(71,000
)
 
121,825,000

 
(1,098,000
)
State and political subdivisions
2,528,000

 
(24,000
)
 
2,901,000

 
(63,000
)
 
5,429,000

 
(87,000
)
Other equity securities
64,000

 
(5,000
)
 
52,000

 
(1,000
)
 
116,000

 
(6,000
)
 
$
168,818,000

 
$
(2,525,000
)
 
$
21,048,000

 
$
(950,000
)
 
$
189,866,000

 
$
(3,475,000
)
As of September 30, 2015, there were 88 securities with unrealized losses held in the Company's portfolio. These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 14 had been temporarily impaired for 12 months or more. Information regarding securities temporarily impaired as of September 30, 2015 is summarized below:
 
Less than 12 months
 
12 months or more
 
Total
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
 
Fair Value (Estimated)
 
Unrealized Losses
U.S. Government-sponsored agencies
$
46,621,000

 
$
(1,015,000
)
 
$
17,444,000

 
$
(556,000
)
 
$
64,065,000

 
$
(1,571,000
)
Mortgage-backed securities
30,713,000

 
(266,000
)
 
989,000

 
(63,000
)
 
31,702,000

 
(329,000
)
State and political subdivisions
14,417,000

 
(207,000
)
 
2,374,000

 
(130,000
)
 
16,791,000

 
(337,000
)
Other equity securities
264,000

 
(34,000
)
 
51,000

 
(2,000
)
 
315,000

 
(36,000
)
 
$
92,015,000

 
$
(1,522,000
)
 
$
20,858,000

 
$
(751,000
)
 
$
112,873,000

 
$
(2,273,000
)

During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 with a corresponding fair value of $89,757,000 from available for sale to held to maturity. The net unrealized loss, net of taxes, on these securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income (loss), net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the net unrealized loss reported in accumulated other comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities. The

Page 10



remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $124,000 at September 30, 2016. These securities were transferred as a part of the Company's overall investment and balance sheet strategies.
The Bank is a member of the Federal Home Loan Bank ("FHLB") of Boston, a cooperatively owned wholesale bank for housing and finance in the six New England States. As a requirement of membership in the FHLB, the Bank must own a minimum required amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB. The Bank uses the FHLB for much of its wholesale funding needs. As of September 30, 2016 and 2015, and December 31, 2015, the Bank's investment in FHLB stock totaled $13,011,000, $12,875,000 and $13,220,000, respectively. FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value. The Company periodically evaluates its investment in FHLB stock for impairment based on, among other factors, the capital adequacy of the FHLB and its overall financial condition. No impairment losses have been recorded through September 30, 2016. The Bank will continue to monitor its investment in FHLB stock.
Note 3 – Loans
The following table shows the composition of the Company's loan portfolio as of September 30, 2016 and 2015 and at December 31, 2015:
 
September 30, 2016
 
December 31, 2015
 
September 30, 2015
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate
$
297,808,000

 
28.9
%
$
269,462,000

 
27.3
%
$
268,741,000

 
27.9
%
   Construction
18,828,000

 
1.8
%
24,881,000

 
2.5
%
23,624,000

 
2.5
%
   Other
131,198,000

 
12.8
%
128,341,000

 
13.0
%
119,097,000

 
12.4
%
Municipal
26,153,000

 
2.5
%
19,751,000

 
2.0
%
21,377,000

 
2.2
%
Residential
 
 
 
 
 
 
 
 
 
 
 
 
   Term
403,159,000

 
39.2
%
403,030,000

 
40.7
%
385,145,000

 
39.9
%
   Construction
14,269,000

 
1.4
%
8,451,000

 
0.9
%
12,029,000

 
1.2
%
Home equity line of credit
111,994,000

 
10.9
%
110,202,000

 
11.1
%
109,390,000

 
11.4
%
Consumer
25,583,000

 
2.5
%
24,520,000

 
2.5
%
23,748,000

 
2.5
%
Total
$
1,028,992,000

 
100.0
%
$
988,638,000

 
100.0
%
$
963,151,000

 
100.0
%
Loan balances include net deferred loan costs of $4,648,000 as of September 30, 2016, $3,686,000 as of December 31, 2015, and $3,452,000 as of September 30, 2015. Pursuant to collateral agreements, qualifying first mortgage loans, which totaled $262,001,000 at September 30, 2016, $279,463,000 at December 31, 2015, and $281,925,000 at September 30, 2015, were used to collateralize borrowings from the FHLB. In addition, commercial, construction and home equity loans totaling $261,416,000 at September 30, 2016, $243,578,000 at December 31, 2015, and $251,937,000 at September 30, 2015, were used to collateralize a standby line of credit at the Federal Reserve Bank of Boston that is currently unused.
For all loan classes, loans over 30 days past due are considered delinquent. Information on the past-due status of loans by class of financing receivable as of September 30, 2016, is presented in the following table:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90+ Days
Past Due
 
All
Past Due
 
Current
 
Total
 
90+ Days
& Accruing
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate
$

 
$
385,000

 
$
1,101,000

 
$
1,486,000

 
$
296,322,000

 
$
297,808,000

 
$

   Construction

 

 

 

 
18,828,000

 
18,828,000

 

   Other
573,000

 
18,000

 
53,000

 
644,000

 
130,554,000

 
131,198,000

 

Municipal

 

 

 

 
26,153,000

 
26,153,000

 

Residential
 
 
 
 
 
 
 
 
 
 
 
 
 
   Term
414,000

 
3,896,000

 
1,925,000

 
6,235,000

 
396,924,000

 
403,159,000

 

   Construction

 

 

 

 
14,269,000

 
14,269,000

 

Home equity line of credit
310,000

 
49,000

 
708,000

 
1,067,000

 
110,927,000

 
111,994,000

 

Consumer
124,000

 
124,000

 
62,000

 
310,000

 
25,273,000

 
25,583,000

 
7,000

Total
$
1,421,000

 
$
4,472,000

 
$
3,849,000

 
$
9,742,000

 
$
1,019,250,000

 
$
1,028,992,000

 
$
7,000


Page 11



Information on the past-due status of loans by class of financing receivable as of December 31, 2015, is presented in the following table:
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90+ Days
Past Due
 
All
Past Due
 
Current
 
Total
 
90+ Days
& Accruing
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate
$
603,000

 
$

 
$
281,000

 
$
884,000

 
$
268,578,000

 
$
269,462,000

 
$

   Construction
35,000

 

 
238,000

 
273,000

 
24,608,000

 
24,881,000